What Is the Tax Classification on a W9 Form?

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When you or your business is on the receiving end of a payment, the payer may request a completed W-9 so he can properly report your payments to the Internal Revenue Service. This provides him with the information he needs to file a 1099-MISC form with the IRS, detailing what he paid you. When you're filling out the W-9, you must indicate the appropriate tax classification, such as whether you're a corporation, a partnership or an individual.

Tax Classifications on the W-9

A tax classification refers to the set of rules governing how individuals, businesses and other entities are taxed. You can select between individual, sole proprietor, single- and multi-member limited liability company, C and S corporation, partnership, or trust or estate on the W-9. These types of entities all pay taxes under different sets of rules, so marking the correct box is important.

Some Tax Classification Differences

Other than a sole proprietor whose earnings are taxed at the same personal income tax rates that apply to most individuals, other business entities can sometimes choose their tax classification. For example, incorporated businesses that qualify can elect to be taxed as S corps instead of C corps. C corps might face double taxation because the business first pays federal income taxes on all profits, then shareholders might also owe taxes on their dividends. An S corp, on the other hand, is taxed like a partnership – business profits are allocated among the shareholders, who only have to pay income tax on it once. You can even form an LLC in your state yet elect to be taxed as a C or S corp. Talk with a tax professional to find out what best suits your business.


About the Author

Michael Marz has worked in the financial sector since 2002, specializing in wealth and estate planning. After spending six years working for a large investment bank and an accounting firm, Marz is now self-employed as a consultant, focusing on complex estate and gift tax compliance and planning.

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